Exhibit 4.209
Consolidated Income
(unaudited) |
| Three months ended December 31 |
| Year ended December 31 |
| ||||||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| |||||
Revenues |
| 1,338 |
| 1,279 |
| 5,214 |
| 5,275 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Expenses |
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
| 584 |
| 548 |
| 2,173 |
| 2,330 |
| ||||
Depreciation |
| 217 |
| 204 |
| 848 |
| 793 |
| ||||
|
| 801 |
| 752 |
| 3,021 |
| 3,123 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Income |
| 537 |
| 527 |
| 2,193 |
| 2,152 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other Expenses/(Income) |
|
|
|
|
|
|
|
|
| ||||
Financial charges |
| 215 |
| 225 |
| 867 |
| 889 |
| ||||
Financial charges of joint ventures |
| 23 |
| 29 |
| 90 |
| 107 |
| ||||
Interest and other income |
| (24 | ) | (14 | ) | (86 | ) | (77 | ) | ||||
|
| 214 |
| 240 |
| 871 |
| 919 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from Continuing Operations before Income Taxes |
| 323 |
| 287 |
| 1,322 |
| 1,233 |
| ||||
Income Taxes - Current and Future |
| 128 |
| 106 |
| 517 |
| 480 |
| ||||
Net Income from Continuing Operations |
| 195 |
| 181 |
| 805 |
| 753 |
| ||||
Net Income/(Loss) from Discontinued Operations |
| — |
| 20 |
| — |
| (67 | ) | ||||
Net Income |
| 195 |
| 201 |
| 805 |
| 686 |
| ||||
Preferred Securities Charges |
| 10 |
| 10 |
| 36 |
| 45 |
| ||||
Preferred Share Dividends |
| 5 |
| 5 |
| 22 |
| 22 |
| ||||
Net Income Applicable to Common Shares |
| 180 |
| 186 |
| 747 |
| 619 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income/(Loss) Applicable to Common Shares |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| 180 |
| 166 |
| 747 |
| 686 |
| ||||
Discontinued operations |
| — |
| 20 |
| — |
| (67 | ) | ||||
|
| 180 |
| 186 |
| 747 |
| 619 |
| ||||
Net Income/(Loss) Per Share |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 0.37 |
| $ | 0.35 |
| $ | 1.56 |
| $ | 1.44 |
|
Discontinued operations |
| — |
| 0.05 |
| — |
| (0.14 | ) | ||||
Basic |
| $ | 0.37 |
| $ | 0.40 |
| $ | 1.56 |
| $ | 1.30 |
|
Diluted |
| $ | 0.37 |
| $ | 0.40 |
| $ | 1.55 |
| $ | 1.30 |
|
|
|
|
|
|
|
|
|
|
| ||||
Average Shares Outstanding - Basic (millions) |
| 479.3 |
| 476.5 |
| 478.3 |
| 475.8 |
| ||||
Average Shares Outstanding - Diluted (millions) |
| 481.7 |
| 478.4 |
| 480.7 |
| 477.6 |
|
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Cash Flows
(unaudited) |
| Three months ended December 31 |
| Year ended December 31 |
| ||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| |
|
|
|
|
|
|
|
|
|
|
Cash Generated From Operations |
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
| 195 |
| 181 |
| 805 |
| 753 |
|
Depreciation |
| 217 |
| 204 |
| 848 |
| 793 |
|
Future income taxes |
| 67 |
| 6 |
| 247 |
| 127 |
|
Other |
| (12 | ) | (30 | ) | (73 | ) | (49 | ) |
Funds generated from continuing operations |
| 467 |
| 361 |
| 1,827 |
| 1,624 |
|
Decrease in operating working capital |
| 101 |
| 99 |
| 33 |
| 170 |
|
Net cash provided by continuing operations |
| 568 |
| 460 |
| 1,860 |
| 1,794 |
|
Net cash provided by/(used in) discontinued operations |
| 29 |
| 4 |
| 59 |
| (659 | ) |
|
| 597 |
| 464 |
| 1,919 |
| 1,135 |
|
Investing Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (202 | ) | (174 | ) | (599 | ) | (492 | ) |
Acquisitions, net of cash acquired |
| (209 | ) | (110 | ) | (228 | ) | (585 | ) |
Disposition of assets |
| — |
| 216 |
| — |
| 1,170 |
|
Deferred amounts and other |
| (103 | ) | (7 | ) | (115 | ) | 30 |
|
Net cash (used in)/provided by investing activities |
| (514 | ) | (75 | ) | (942 | ) | 123 |
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
Dividends and preferred securities charges |
| (139 | ) | (138 | ) | (546 | ) | (517 | ) |
Notes payable issued/(repaid), net |
| 182 |
| 336 |
| (46 | ) | 186 |
|
Reduction of long-term debt |
| (256 | ) | (164 | ) | (486 | ) | (793 | ) |
Non-recourse debt of joint ventures issued |
| 20 |
| 5 |
| 44 |
| 23 |
|
Reduction of non-recourse debt of joint ventures |
| (29 | ) | (85 | ) | (80 | ) | (132 | ) |
Common shares issued |
| 7 |
| 5 |
| 50 |
| 24 |
|
Partnership units of joint ventures issued |
| — |
| 59 |
| — |
| 59 |
|
Preferred securities redeemed |
| — |
| (318 | ) | — |
| (318 | ) |
Net cash used in financing activities |
| (215 | ) | (300 | ) | (1,064 | ) | (1,468 | ) |
|
|
|
|
|
|
|
|
|
|
(Decrease)/Increase in Cash and Short-Term Investments |
| (132 | ) | 89 |
| (87 | ) | (210 | ) |
|
|
|
|
|
|
|
|
|
|
Cash and Short-Term Investments |
|
|
|
|
|
|
|
|
|
Beginning of period |
| 344 |
| 210 |
| 299 |
| 509 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Short-Term Investments |
|
|
|
|
|
|
|
|
|
End of period |
| 212 |
| 299 |
| 212 |
| 299 |
|
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Balance Sheet
(unaudited) |
| 2002 |
| 2001 |
|
ASSETS |
|
|
|
|
|
Current Assets |
|
|
|
|
|
Cash and short-term investments |
| 212 |
| 299 |
|
Accounts receivable |
| 691 |
| 655 |
|
Inventories |
| 178 |
| 177 |
|
Other |
| 102 |
| 43 |
|
|
| 1,183 |
| 1,174 |
|
Long-Term Investments |
| 291 |
| 268 |
|
Plant, Property and Equipment |
| 17,496 |
| 17,685 |
|
Other Assets |
| 946 |
| 827 |
|
|
| 19,916 |
| 19,954 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Notes payable |
| 297 |
| 343 |
|
Accounts payable |
| 902 |
| 786 |
|
Accrued interest |
| 227 |
| 233 |
|
Current portion of long-term debt |
| 517 |
| 483 |
|
Current portion of non-recourse debt of joint ventures |
| 75 |
| 44 |
|
Provision for loss on discontinued operations |
| 234 |
| 264 |
|
|
| 2,252 |
| 2,153 |
|
Deferred Amounts |
| 353 |
| 393 |
|
Long-Term Debt |
| 8,815 |
| 9,347 |
|
Future Income Taxes |
| 226 |
| 39 |
|
Non-Recourse Debt of Joint Ventures |
| 1,222 |
| 1,295 |
|
Junior Subordinated Debentures |
| 238 |
| 237 |
|
|
| 13,106 |
| 13,464 |
|
Shareholders’ Equity |
|
|
|
|
|
Preferred securities |
| 674 |
| 675 |
|
Preferred shares |
| 389 |
| 389 |
|
Common shares |
| 4,614 |
| 4,564 |
|
Contributed surplus |
| 265 |
| 263 |
|
Retained earnings |
| 854 |
| 586 |
|
Foreign exchange adjustment |
| 14 |
| 13 |
|
|
| 6,810 |
| 6,490 |
|
|
| 19,916 |
| 19,954 |
|
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Retained Earnings
(unaudited) |
| Year ended December 31 |
| ||
| 2002 |
| 2001 |
| |
Balance at beginning of period |
| 586 |
| 395 |
|
Net income |
| 805 |
| 686 |
|
Preferred securities charges |
| (36 | ) | (45 | ) |
Preferred share dividends |
| (22 | ) | (22 | ) |
Common share dividends |
| (479 | ) | (428 | ) |
|
| 854 |
| 586 |
|
See accompanying Notes to the Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
The consolidated financial statements of TransCanada PipeLines Limited (TransCanada or the company) have been prepared in accordance with Canadian generally accepted accounting principles. The accounting policies applied are consistent with those outlined in the company’s annual financial statements for the year ended December 31, 2001 except as stated below. These consolidated financial statements do not include all disclosures required in the annual financial statements and should be read in conjunction with the annual financial statements included in TransCanada’s 2001 Annual Report. Amounts are stated in Canadian dollars unless otherwise indicated. Certain comparative figures have been reclassified to conform with the current period’s presentation.
Since a determination of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of these consolidated financial statements requires the use of estimates and assumptions. In the opinion of Management, these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the company’s significant accounting policies.
Regulation
In June 2002, the company received the National Energy Board (NEB) decision on its Fair Return application (Fair Return decision) to determine the cost of capital to be included in the calculation of 2001 and 2002 final tolls on its Canadian Mainline. The Fair Return decision on the cost of capital included an increase in the deemed common equity ratio from 30 to 33 per cent effective January 1, 2001. The NEB also decided that the return on equity as calculated based on the NEB formula continued to be appropriate for the Canadian Mainline which results in an approved rate of return on common equity of 9.61 per cent for 2001 and 9.53 per cent for 2002. The results for the year ended December 31, 2002 include after-tax net income of $36 million or $0.08 per share representing the impact of the Fair Return decision for 2001 ($16 million) and 2002 ($20 million).
2. Accounting Changes
Price risk management
Effective September 30, 2002, the company adopted accrual accounting for energy trading contracts in its continuing operations, changing from its previous policy of mark-to-market
accounting for these contracts. This accounting change has been applied retroactively with restatement of prior periods. This change eliminates unrealized gains and losses on energy trading contracts recognized under mark-to-market accounting. The cumulative effect of this accounting change as at January 1, 2001 was a decrease of $20 million in retained earnings. The impact of this change on net income was an increase/(decrease) for fourth quarter 2002 of $5 million (2001 - $(1) million) and for the year ended December 31, 2002 of $13 million (2001 - $11 million). This change is reflected in the Power segment.
Foreign currency translation
Effective January 1, 2002, TransCanada adopted the amendment to the Canadian Institute of Chartered Accountants (CICA) Handbook Section “Foreign Currency Translation”. This amendment eliminates the deferral and amortization of unrealized translation gains and losses on foreign currency denominated monetary items that have a fixed or ascertainable life extending beyond the end of the fiscal year following the current reporting period. This accounting change was applied retroactively with restatement of prior periods. The cumulative effect of this accounting change as at January 1, 2001 was an increase of $1 million in retained earnings. The impact of this change on net income was an increase in fourth quarter 2002 of nil (2001 - nil) and for the year ended December 31, 2002 of nil (2001 - $5 million). This change is reflected in the Corporate segment.
Stock-Based Compensation
In 2002, TransCanada adopted the new standard of the CICA Handbook Section “Stock-Based Compensation and Other Stock-Based Payments”. This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. This standard allows companies to either expense, over the vesting period, the fair value of the stock options granted or to disclose this impact.
The company has chosen to expense stock options and the impact of this accounting change, which has been recorded in the fourth quarter of 2002, results in a $2 million charge to net income. This charge is reflected in the Transmission and Power segments. The company used the Black-Scholes model for this calculation.
On February 25, 2002, the company issued 1,946,300 options to purchase common shares at $21.43 under the company’s Key Employee Stock Incentive Plan. For these options, 25 per cent of the common shares subject to an option may be purchased on the award date and 25 per cent on each of the three following award date anniversaries.
After reflecting the accounting changes, the following amounts in the Consolidated Balance Sheet, Consolidated Statement of Income and Consolidated Statement of Cash Flows as at and for the year ended December 31, 2001 have been restated as follows.
(unaudited - millions of dollars) |
| 2001 |
|
Consolidated Balance Sheet |
|
|
|
Energy trading assets |
|
|
|
Current asset |
| — |
|
Long-term asset |
| — |
|
Other assets |
| 827 |
|
Future income tax asset |
| — |
|
Total assets |
| 19,954 |
|
Energy trading liabilities |
|
|
|
Current liability |
| — |
|
Long-term liability |
| — |
|
Future income tax liability |
| 39 |
|
Total liabilities |
| 13,464 |
|
Retained earnings |
| 586 |
|
|
|
|
|
Consolidated Income |
|
|
|
Revenues |
| 5,275 |
|
Operating expenses |
| 2,330 |
|
Financial charges |
| 889 |
|
Income taxes - current and future |
| 480 |
|
Net income |
| 686 |
|
|
|
|
|
Consolidated Cash Flows |
|
|
|
Funds generated from continuing operations |
| 1,624 |
|
Net cash provided by investing activities |
| 123 |
|
3. Segmented Information
|
| Transmission |
| Power |
| Corporate |
| Total |
| ||||||||
Three months ended December 31 |
|
|
|
|
|
|
|
|
| ||||||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| |
Revenues |
| 1,007 |
| 990 |
| 331 |
| 289 |
| — |
| — |
| 1,338 |
| 1,279 |
|
Operating expenses |
| (319 | ) | (313 | ) | (264 | ) | (219 | ) | (1 | ) | (16 | ) | (584 | ) | (548 | ) |
Depreciation |
| (197 | ) | (191 | ) | (20 | ) | (12 | ) | — |
| (1 | ) | (217 | ) | (204 | ) |
Operating income/(loss) |
| 491 |
| 486 |
| 47 |
| 58 |
| (1 | ) | (17 | ) | 537 |
| 527 |
|
Financial and preferred equity charges |
| (205 | ) | (212 | ) | (4 | ) | (4 | ) | (21 | ) | (24 | ) | (230 | ) | (240 | ) |
Financial charges of joint ventures |
| (23 | ) | (24 | ) | — |
| (5 | ) | — |
| — |
| (23 | ) | (29 | ) |
Interest and other income |
| 12 |
| 5 |
| 2 |
| 4 |
| 10 |
| 5 |
| 24 |
| 14 |
|
Income taxes |
| (113 | ) | (102 | ) | (15 | ) | (18 | ) | — |
| 14 |
| (128 | ) | (106 | ) |
Continuing operations |
| 162 |
| 153 |
| 30 |
| 35 |
| (12 | ) | (22 | ) | 180 |
| 166 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| 20 |
|
Net Income Applicable to Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| 180 |
| 186 |
|
|
| Transmission |
| Power |
| Corporate |
| Total |
| ||||||||
Year ended December 31 |
|
|
|
|
|
|
|
|
| ||||||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| 2002 |
| 2001 |
| |
Revenues |
| 3,921 |
| 3,880 |
| 1,293 |
| 1,395 |
| — |
| — |
| 5,214 |
| 5,275 |
|
Operating expenses |
| (1,166 | ) | (1,226 | ) | (998 | ) | (1,073 | ) | (9 | ) | (31 | ) | (2,173 | ) | (2,330 | ) |
Depreciation |
| (783 | ) | (753 | ) | (65 | ) | (37 | ) | — |
| (3 | ) | (848 | ) | (793 | ) |
Operating income/(loss) |
| 1,972 |
| 1,901 |
| 230 |
| 285 |
| (9 | ) | (34 | ) | 2,193 |
| 2,152 |
|
Financial and preferred equity charges |
| (821 | ) | (856 | ) | (13 | ) | (15 | ) | (91 | ) | (85 | ) | (925 | ) | (956 | ) |
Financial charges of joint ventures |
| (90 | ) | (98 | ) | — |
| (9 | ) | — |
| — |
| (90 | ) | (107 | ) |
Interest and other income |
| 50 |
| 30 |
| 13 |
| 13 |
| 23 |
| 34 |
| 86 |
| 77 |
|
Income taxes |
| (458 | ) | (392 | ) | (84 | ) | (106 | ) | 25 |
| 18 |
| (517 | ) | (480 | ) |
Continuing operations |
| 653 |
| 585 |
| 146 |
| 168 |
| (52 | ) | (67 | ) | 747 |
| 686 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| (67 | ) |
Net Income Applicable to Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| 747 |
| 619 |
|
Total Assets |
| 2002 |
| 2001 |
|
Transmission |
| 16,979 |
| 17,269 |
|
Power |
| 2,292 |
| 1,880 |
|
Corporate |
| 457 |
| 480 |
|
Continuing Operations |
| 19,728 |
| 19,629 |
|
Discontinued Operations |
| 188 |
| 325 |
|
|
| 19,916 |
| 19,954 |
|
4. Discontinued Operations
In July 2001, the Board of Directors approved a plan to dispose of the company’s Gas Marketing business. The Gas Marketing business provided supply, transportation and asset management services, as well as structured financial products and services. In December 1999, the Board of Directors approved a plan (December Plan) to dispose of the company’s International, Canadian Midstream and certain other businesses. The company’s disposals under both plans were substantially completed at December 31, 2001.
The company remains contingently liable pursuant to obligations under certain energy trading contracts that relate to the divested Gas Marketing business. At December 31, 2002, the provision for loss on discontinued operations, including approximately $100 million of deferred after-tax gains and remaining obligations related to the Gas Marketing business, was reviewed and was concluded to be appropriate.
Revenues from discontinued operations for fourth quarter 2002 were $6 million (fourth quarter 2001 - $703 million) and for the twelve months ended December 31, 2002 were $36 million (2001 - $12,895 million). The provision for loss on discontinued operations at December 31, 2002 was $234 million (December 31, 2001 - $264 million). This was comprised of $129 million (December 31, 2001 - $129 million) relating to Gas Marketing and $105 million (December 31, 2001 - $135 million) relating to the December Plan.
Other Financial Information on Discontinued Operations
The following amounts related to discontinued operations are included in the consolidated balance sheet.
December 31 (unaudited - millions of dollars) |
| 2002 |
| 2001 |
|
Current assets |
| 79 |
| 113 |
|
Non-current assets |
| 109 |
| 212 |
|
Current liabilities |
| (98 | ) | (116 | ) |
Non-current liabilities |
| — |
| (9 | ) |
Net Assets of Discontinued Operations |
| 90 |
| 200 |
|
5. Contingencies
The California Attorney General has filed a complaint for civil penalties in California Superior Court under the California Business and Professions Code. The complaint alleges that certain TransCanada subsidiaries and affiliates engaged in sales or purchases of electricity in California for which they failed to comply with the filing requirements of the Federal Power Act and the U.S. Federal Energy Regulatory Commission (FERC) orders. TransCanada believes the actions of its subsidiaries and
affiliates were in compliance with the Federal Power Act and FERC requirements. TransCanada considers the complaint to be without merit and is vigorously defending it. The company has made no provision for any potential liability.
The Canadian Alliance of Pipeline Landowners’ Associations and two individual landowners have commenced an action under Ontario’s Class Proceedings Act, 1992, against TransCanada and Enbridge Inc. for damages alleged to arise from the creation of a control zone within 30 metres of the pipeline pursuant to section 112 of the NEB Act. The company believes the claim is without merit and will vigorously defend the action. The company has made no provision for any potential liability. A liability, if any, would be dealt with through the regulatory process.
The company and its subsidiaries are subject to various other legal proceedings and actions arising in the normal course of business. While the final outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material impact on the company’s consolidated financial position or results of operations.
Supplementary Information
As at December 31, 2002, TransCanada had 479,502,342 issued and outstanding common shares. In addition, there were 12,892,452 outstanding options to purchase common shares, of which 10,257,626 were exercisable as at December 31, 2002.
TransCanada welcomes questions from shareholders and potential investors. Please telephone:
Investor Relations, at 1-800-361-6522 (Canada and U.S. Mainland) or direct dial David Moneta/Debbie Persad at (403) 920-7911. The investor fax line is (403) 920-2457. Media Relations: Glenn Herchak/Kurt Kadatz at (403) 920-7877.
Visit TransCanada’s Internet site at: http://www.transcanada.com